blockchain is eating software, the internet, data and the world.

​and it's hungry for seconds.

Today the Securities and Exchange Commission got a federal court order halting the altcoin ICO of AriseBank.

The ICO raised around $600 million in two months and planned to create the world’s first “decentralized bank” via a cryptocurrency, AriseCoin. AriseBank claimed it would offer consumer-facing products and services, including a cryptocurrency trading algorithm.

The crux of the order is that AriseCoin, in the SEC’s view, is a security and needs to either be registered or fit into an exemption.

Fraud Red Flags

There is the standard Howey framework for analyzing whether something is a security. However, in a lot of cases, the key isn’t so much whether an investment cleanly fits into the Howey framework.

I’ve been wondering about volatility of Bitcoin lately. In particular, I've been curious about the frequency of Bitcoin dips. I parsed through historical daily closing price data and mapped out the frequency of various sized dips ranging from 2013 through 2017.

Average days between different size Bitcoin dips based on year, and for all years in 2013-17.

BTC had been trading in the mid-to-high $10,000s in the weeks leading up to that expiration, but dropped during the few days right before it. The first expiring BTC futures contract was set for $10,900, so any owner of that first round of futures had an interest in seeing BTC tank from its $17k highs.

The crypto markets right now are quite pure, due to their relative young age and light regulation. Pure in the sense that institutional actors like banks aren’t calling the shots. That, however, doesn’t mean these markets aren’t susceptible to manipulation.

The upside of this pure market state means banks aren’t using their weight to move the market to their will (yet).

The Securities and Exchange Commission’s (SEC) Cyber Unit recently sent a cease and desist letter and released an Order related to an ICO that required the issuer, Munchee Inc, to refund investors for their token investments. Munchee was intended to be a “Yelp Meets Instagram” that offered tokens in relation to restaurant reviews.

The cease and desist letter from the SEC gives us more guidance on how the SEC is thinking about ICOs.

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